Pokarna Limited

Q1 FY23 Earnings Conference Call Transcript

August 17, 2022

Moderator

Ladies and gentlemen, good day, and welcome to the Pokarna Limited Q1 FY

'23 Earnings Conference Call.

Please note that this conference is being recorded.

I now hand the conference over to Mr. Gavin Desa from CDR India. Thank you,

and over to you, sir.

Gavin Desa

Thank you. Good day, everyone, and a warm welcome to Pokarna Limited's Q1

FY '23 Earnings Conference Call. We have with us today Mr. Gautam Chand

Jain, Chairman and Managing Director; and Mr. Paras Kumar Jain, Chief

Executive Officer, Pokarna Engineered Stone Limited.

I trust most of you have gone through the communication and the results mailed

to you earlier. In the interest of time, we would like to commence with Q&A

immediately.

So, I'd like to hand over to the moderator, Mike, to open the floor for Q&A. Over

to you, Mike.

Moderator

The first question from the line of Dixit Doshi from Whitestone Financial

Advisors.

Dixit Doshi

My first question is regarding this recently, U.S. commerce came out with the

preliminary duty notification in July. So, if you can elaborate on that. So now we

don't have to pay anything. And in that notification, the competitors were levied

166%. So, is it the final, now the competitors are paying this much duties or final

outcome will come in November or December?

Paras Jain

The Department of Commerce preliminarily announced the antidumping duty for

Pokarna to be 0%. And this is subject to the final outcome, which is expected to

happen anytime between end of October and December. So, the duties are still

not final and subject to the final outcome by the DOC. So currently, our products

are subject to 2.67% as the cash deposits in which 0.33% is the antidumping

and 2.34% is the countervailing duty.

Dixit Doshi

Okay. And what about the competitors? So, from July to, let's say, by the time

the final outcome come in December, how the competitors will have to pay?

Paras Jain

See basically, the duties are paid by the importer of record. So, it is not

necessarily the supplier who pays it. It can also be the buyer who is going to pay

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it. So, while the preliminary duties have been announced, they have not yet

come in force. They will come into force only after the final duties have been

announced and implemented.

Dixit Doshi

Okay. Now my second question is regarding the demand outlook. So, we had a

very good quarter Q1, so how do you see the order booking for next two, three

quarters and demand scenario in the U.S?

Paras Jain

See, I think with the pandemic-related demand getting relatively behind and with

the talks of recession and other challenges coming, so we don't see a bleak

quarter, but at the same time, we are very cautious about the future. So, at the

moment, we are very cautious as to how the demand will pan out. I think it will

take at least a couple of quarters to see how the demand is panning out. It's too

early to comment now.

Moderator

We have the next question from the line of Sonaal KohIi from Bowhead.

Sonaal Kohli

I have two queries, firstly, assuming the antidumping duty goes through for the

competitors, what kind of market share gains or strategy gains you could see if

any? And secondly, as far as the freight rates are concerned and the resin

prices, et cetera, are concerned When would you see the benefit of lower freight

prices and raw material prices for you? Third, you may allow, what are the levers

available to you to be able to sell whatever production you do over the next one,

one and a half years once everything stabilizes even if U.S. demand is a bit

weak considering our market share?

Paras Jain

Okay. So, coming to your first question as to what will Pokarna benefit from the

spillover of demand arising out of the antidumping duties on certain participants

out of India. See basically, unless there is a complete clarity on as to how this is

going, it's difficult to comment. So, I think we'll be able to talk much about it only

once the final duties come through because there are, different price bracket at

which the competition operates. And those price bracket may not fully be

lucrative to us.

So, we'll have to see how we use that platform to leverage. So, I think probably

when we speak, maybe in the third quarter or maybe at the end of the calendar

year, we'll have more clarity as to whether the spillover will benefit us or not.

Now coming to the raw material prices, the raw material prices have recently

started not all the prices, raw material prices, but more specifically, the resin

prices seems to be now tapering down. So, we think that the entire benefit of

that would probably come in the third quarter when we see that the price could

stabilize. I think we'll have to wait till the third quarter for us to see the benefit of

the resin prices getting stabilized.

Moderator

We have the next question from the line of V.P. Rajesh from Banyan Capital

Advisors.

V.P. Rajesh

Okay. If you can just comment on the capacity utilization in the June quarter?

And then secondly, what is our debt number at the end of June, how much debt

have we paid down?

Paras Jain

So capacity utilization in Q1 has been better than the Q4 of last financial year.

While the product mix continues to be what it was, but slightly there has been

an improvement in the capacity utilization. We believe that as we progress and

once we have more clarity on the demand outlook for arising out of the economic

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indicators or from the DOC, we'll be able to ramp up the capacity. We have a

little cushion in the capacity to go up further. That answers your first question

typically. Now on the debt side, you're looking at the term loan side or working

capital?

V.P. Rajesh

Total debt, I think you had indicated last time that you'll pay down Rs.100 crore

in this year. So, I was just wondering if that process started in this June quarter.

Gautam Chand Jain

So the consolidated debt is Rs.516 crore, which includes Granite and also the

Quartz divisions.

Paras Jain

Including both the term loan and the working capital.

V.P. Rajesh

Okay. And just a quick question on the capacity utilization. Last time, you gave

the numbers. So, if you can just share the numbers, if that's possible?

Paras Jain

I can only say that capacity utilization has improved than the past. So, I think if

you could excuse me on the numbers. Thank you.

Moderator

We have the next question from the line of Vikram Sharma from Niveshaay

Investment Advisors.

Vikram Sharma

So I had a query related to what was the product mix in the current quarter, basic

product and premium products? And what is our outlook on generalized EBITDA

margin going ahead?

Paras Jain

See, basically the product mix in this quarter was relatively better than what we

had in the fourth quarter but it is still not at the level where we want it to be. So,

it's going to take some time for the product mix to stabilize. And that's again

correlated with the demand scenario. So that answers your first question.

Coming to the second question on the EBITDA margin. See, basically, our target

at the moment is to come to an EBITDA level of 30%. And once we have a little

stabilization at the resin cost, we believe that, that number is possible to achieve.

Vikram Sharma

And, what is the demand outlook in U.S. market? Is there any challenge in order

book?

Paras Jain

So I just answered at the beginning of this call that we are closely watching the

demand scenario in both kitchen and bath industry in the U.S. with the talk of

recessions and that's another economic indicator not being so lucrative for any

other business as well. So I think we'll give a better clarity on the demand outlook

probably in the third quarter because that will give us a lot more indicators as to

how things are panning out, how the inventory position is in the U.S. and how

the US Department of Commerce investigation actually spills over some

demand.

Moderator

We have the next question from the line of Pritesh Chheda from Lucky

Investment Managers.

Pritesh Chheda

Sir, I missed your comment on when will you start seeing benefit of resin and

freight cost prices lower? And what is your debt repayment scheduled for current

year and next year?

Paras Jain

Okay. So resin prices are cooling down, we think that the benefit will start coming

in from the third quarter completely because there are certain contracts, which

have extended pricing for the raw material. And the freight cost has come down,

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but it has still not come down significantly. And so, I think more than the shipping

costs, we are more eager to look at the benefits from the resin price stabilization.

Gautam Chand Jain

Regarding the debt payments, we have a schedule from the banks and debt will

start falling more from next year. But this year, maybe we'll pay about Rs.10

crore to Rs.15 crore what is due to pay during this year, financial year.

Pritesh Chheda

Okay. And how much of our material is FOB?

Paras Jain

The large component of our business is FOB.

Pritesh Chheda

Okay. Large component is FOB. Okay. And have you firmed up on any

expansion plan?

Paras Jain

As a business, we keep looking at the opportunities as they keep coming. So,

while they have not firmed up any business plan for expansion at the moment,

but we keep looking at the options. And I think when we believe that it requires

a serious consideration, we'll take it for the appropriate approvals internally and

then inform the exchanges.

Pritesh Chheda

Any movement in Quartz price?

Paras Jain

Basically, as the trend with the raw materials has always been at least in the

recent past on the higher side. So, there is a little firm up on the pricing because

of general increase in the cost of doing business.

Pritesh Chheda

Okay. And lastly, you were targeting 100% utilization by year-end? Will you be

able to achieve it?

Paras Jain

See I don't know if we ever said 100%. We always believe that optimum capacity

is about 85%. So, if the demand scenario continues to be positive, I think 85%

is achievable.

Pritesh Chheda

That's Rs.900 crore to Rs.1,000 crore revenue, right?

Paras Jain

I'll let you do that mathematics.

Moderator

We have the next question from the line of Rupesh Tatiya from Intelsense

Capital.

Rupesh Tatiya

Okay. Sir, at the end of Q4, I think our finished goods inventory position was

Rs.85 crore, Rs.86 crore. What would that position be by end of Q1?

Paras Jain

So there is a little change from Rs. 85 crore, it is about Rs. 81 crore.

Rupesh Tatiya

Yes. Is there a one-off in this quarter? I mean that -- is that shipping lines got

better and some inventory in the channel got cleared. Is there a one-off in Q1

number?

Gautam Chand Jain

Are you talking about the consolidated inventory of Granite and Quartz?

Rupesh Tatiya

Yes, yes, sir. That's consolidated levels, yes.

Rupesh Tatiya

Okay. So, there is no one-off, right, in the Q1 number that inventory in China got

consumed, there is no one-off?

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Paras Jain

No. See, basically, as per the policies, what we have in place with regard to the

inventory valuation, we consistently use those policies. So we have not reported

any exceptional item there.

Rupesh Tatiya

No, In terms of sales, I was asking, sir.

Rupesh Tatiya

Sir, was there inventory in that channel. Generally, let's say, we consume maybe

x inventory in channel every quarter? Was it that 10%, 20% of inventory in

channel got cleared and got sold to consumer and now it is being shown as

revenue? That is the question.

Paras Jain

See basically, we don't do that type of accounting. Our accounting is typically

when the risks and rewards are transferred. That is predominantly when the

goods are delivered at the port. So, we don't account for based on the sales,

which our consumers do. So, there's no consignment sales from our side. So,

whatever we have recorded is when the risk and reward are transferred when

the container is delivered at the port.

Rupesh Tatiya

Okay. Okay. And my second question, sir, is it has Hyderabad unit reached the

EBITDA margin level of Vizag unit?

Paras Jain

Not yet. It will take some time because the product mix has still not reached to

the level of Vizag.

Rupesh Tatiya

Okay. And what is the contribution of the newer products because there is newer

capability?

Paras Jain

As we have maintained in the past also that currently, the products with higher

capabilities have still not been commercialized in Hyderabad plant because it

takes certain time for products to be developed, people to be trained and

products to marketed. So, we are still not seeing the products from the

investments, which we have made in Unit 2. So, I think another couple of

quarters by the time we start developing those products, and of course, we have

developed and we have now started marketing it. So, it will take at least a couple

of quarters for the products to get acceptance and the manufacturing to start.

Moderator

We have the next question from the line of Mr. Sachin Kasera from Svan

Investments.

Sachin Kasera

Just wanted to get, check, if you can give us some update on how is the

domestic business shaping up?

Paras Jain

Yes. So domestic business is growing for us. But of course, as a part of our

entire portfolio, it is still a very small number. But the year-on-year growth is

promising, and we've been able to add about 100-plus dealers across India now.

So our product is available for display and consumers can walk in, touch and

feel the product and can also order via our dealer channel. So, I think it will take

some time to become a sizable component in the business. But I think the

demand and the channel development exercise what we are doing here looks

very promising to us in the long term.

Sachin Kasera

So sir, just a follow-up on this. So one is that, when we can expect some good

numbers from this? Secondly, what is the type of feedback you are getting from

consumers? And are we also starting to look at the project side of this business?

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Pokarna Ltd. published this content on 24 August 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 24 August 2022 12:07:07 UTC.